The 2 trillion-dollar CARES Act was recently signed into law. This is CMP’s summary of how you or your business might be impacted. Although most families with disabilities will receive a recovery payment of ($1,200 per single or $2,400 per married couple), any adult who is claimed as a dependent, including many individuals with disabilities, will not be receiving this emergency payment.
Key aspects of the bill are only briefly summarized. Although we are happy to discuss your general tax questions as to how the new bill might apply to your situation, we recommend discussing specific tax implications of the CARES Act with your tax preparer.
Recovery Payments
Payments of $1,200 per individual; $2,400 per married couple; $500 for each child under the age of 17. Does not apply to adult dependents.
Recovery payments are limited by the 2018 or 2019 (latest IRS return on file) by the taxpayer Adjusted Gross Income (AGI) of:
- Single: $75K
- Head of Household: $112, 500
- Married: $150K
*Recovery payments are not taxable
Retirement Account Provisions
RMD requirement suspended for 2020.
- For those who have already taken RMDs, individuals can return a single distribution to their Individual Retirement Account (IRA) if has been taken within 60 days (this 60-day rollover rule is an old provision).
Note: The primary benefit of not taking the RMD in 2020 is to avoid paying the income tax on the distribution this year. Clients will need to weigh the tax benefit of skipping the IRA withdrawal(s) to the need to meet current living expenses.
Retirement account holders can withdrawal up to $100K from IRAs or 401K .
- Must be IRS guidelines of what constitutes COVID-19 hardship (liberally defined)
- No penalty
- Not subject to mandatory 20% federal withholding
- Can be repaid within 3 years
- Withdrawals can be taken over three years
- Withdrawals are subject to income tax
- 401K loans
- Must follow IRS guidelines of what constitutes COVID-19 hardship (liberally defined)
- Up to $100K
- Payments delayed through the end of 2020
Note: COVID-19 hardship guidelines require evidence of adverse financial consequences as a result of being quarantined, furloughed or laid off. Although the intent of Congress is to liberally define these guidelines, the IRS has yet to do so.
Small Business
SBA loans up to a max of $10 million or 2.5 times the average monthly payroll whichever is less.
Loan forgiveness: First 8 weeks of eligible expenses. Must have same number of employees compared to prior year quarter and compensation not less than 75% for current employees paid less than $100K
- Loan interest rate of 4%
- Credit of 50% per first $10,000 in wages per employee
- Only for those business not receiving a covered SBA section 7 (a) (36) loan
- Deferral of Payment of Payroll Taxes from the date of the bill enactment until December 2020
- Deferral of 50% until December 31, 2021
- Deferral of 50% until December 31, 2022
- Does not apply who receive debt forgiveness for certain loans provided by Small Business Administration
- Applies to self-employed persons.
Other
- Charitable contributions up to $300 can be applied against taxable income for 2020
- Federal student loans can be suspended until September 30
- Must notify loan provider, not an automatic provision!
- Unemployment
- Extends benefits by an additional 13 weeks
- Provides an additional $600 per week benefit in addition to regular unemployment benefit
Reference: Levine, Jeffrey. March 2020. “CARES ACT Provisions for Financial Advisors and their Clients,” kitces-CAREs-Act
